Analysts at J.P. Morgan Chase Equity Research expect Google Inc (NASDAQ:GOOG) to report solid earnings result for the first quarter of fiscal 2013.
Analysts, Doug Anmuth together with Bo Nam & Kaizad Gotla said the search engine giant’s financial performance for the quarter is expected to be in line with their estimates due to rapid growth in mobile and display.
Based on their SEM checks, Google Inc (NASDAQ:GOOG) experienced healthy search growth with increasing CPC’s as the company focused on transition to Enhanced Campaigns. The analysts believe that the overall conviction for the search engine giant is positive, but silent because the result of its core business is expected to remain the flat quarter-over-quarter.
The analysts emphasized that they remain bullish on Google Inc (NASDAQ:GOOG) because of several factors that could drive strong profitability including mobile, ad display, Enhanced Campaigns, shopping/PLA’s among others. Anmuth and his colleagues believe that these factors could drive strong growth for the search engine giant year-over year towards the second quarter until next year.
For its core business excluding Motorola, the analysts projected that Google Inc (NASDAQ:GOOG) will report $9.7 billion revenue (-1.1 percent Q/Q, +19.4 percent Y/Y). The result comprises $9.1 billion net advertising revenue & licensing, and other revenue around $609 million (assuming ~0.5 million Nexus units) sold through Google Play.
The analysts estimated that the search engine giant recorded a 22 percent increase on paid clicks Y/Y and -2 percent decline in CPC’s. They projected that Google’s operating income to be around $3.7 billion (38.8 percent margin) and expect an ongoing reduction on Motorola’s product portfolio with weak sales on handsets. The company is expected to report $1.3 billion revenue for Motorola and $404 million operating losses in the first quarter.
Anmuth and his fellow analysts advise investors to watch for Google Inc (NASDAQ:GOOG)’s core search trends and its ongoing transition from desktop to mobile, CPC and Google sites TAC metrics. They also suggested to focus on managements’ comments regarding advertisers response, the timing, and financial impact of the roll out of Enhance Campaigns.
In addition, the analysts will be watching for updated PLA feedback, sales and strategy for Android/Nexus devices, updates and further detail on the designs of Motorola products, as well as updates on C shares and managements latest plan on returning capital to shareholders.
The analysts reiterated their overweight rating and $860 price target for the shares of Google Inc (NASDAQ:GOOG).